**2. Literature review**

Risk arises when there is an unknown or unclear outcome and usually disrupts a particular system. According to Misman [13], risk is the volatility of unexpected results or variability. Risk can be divided into two types, systematic risk and unsystematic risk where numerically it can be measured by standard deviation of historical results. The main risks in the banking system, including Islamic banking, are credit and liquidity risks. The credit cycle, a mismatch of balance sheets [12], and funding constraints [14] are some of the triggering factors for risk exposures. These factors could deteriorate the banking system as a result of an inability to diversify their portfolios [15] and loan syndication [16]. Therefore, to manage risks in the banking system, credit risk and liquidity risk should be linked with the rate of growth of a bank's aggregate balance sheets that remain surplus (high liquidity borrowers and short-term debt) [17–20].

According to Wiranatakusuma and Duasa [21], there are two important risks that are embedded in Islamic bank, which include liquidity risk and credit risk. Credit risk issues are related to banking operations amidst high-nonperforming loans. Banks as financial intermediaries have to meet short-term obligations. When a bank fails to settle its obligations, that means the bank is at risk of bankruptcy. When there is long failure of insolvency situation, the capital will be affected due to the emergency need in maintaining operations and the systematic risk mitigation. Therefore, credit risk is followed by operational risk as capital is gradually eroded. Subsequently, insolvency in financing disbursement would affect the left-hand side (bank-depositor relationship) as the bank is unable to settle its deposited funds' return. It was the signal that the bank is facing liquidity problem due to balance sheet's mismatch.

Therefore, to further clarify the credit, liquidity, and operational risks, some studies explain as follows:
